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Ever since the recovery from the “Great Recession” began approximately mid-2009, many individuals have been forecasting that interest rates will soon be on the rise.
During recent years, we have seen rates increase somewhat, only to fall back to unprecedented levels. But if we take a longer view of interest rates, we might reexamine our outlook.
For example, let’s look at a history of 10-year US Treasury yields. The actual high point for this Treasury was 15.84% on September 30, 1981. During January 2015, yields dipped below 2%. But what was the general course of yields during the almost 34 years between those two points? Perhaps a story is being told that might be considered.
This screen from Bloomberg looks at the 34-year history of the 10-Year Treasury:
We see that while over time, rates go up and rates come down, there does appear to be an overall (downward) trend during the last 34 years. Given that, if you sat on the sidelines with investable funds in cash waiting for rates to rise over the past few years, there was a “cost of waiting” in lost investment returns.
Along with that, every month Bloomberg provides an economist’s survey of where they foresee key financial indicators over the next 2 years or so. If we look at the Bloomberg Survey of (55) economists’ forecasts for the 10-year Treasury from January 16, 2014, we see their forecasted yields for first quarter 2015, ranged from a high of 4.00%, to a low of 2.60%, with an average of 3.48%.
Today, January 30, 2015, the actual yield for the 10-year Treasury is 1.68%! Not one of the 55 economists was even close. We can send you a copy of this survey at your request.
For a point of comparison, as this article is being written, the yield on the 10-year bond in Germany is 0.34% and in Japan it’s 0.28%. In Switzerland it is actually negative 0.03%.
We often hear prognosticators making their predictions on where interest rates are headed. But realistically, based on what? Is it just a gut feeling that what comes down must go up? It reminds me of the characters in the Samuel Beckett play, “Waiting for Godot,” when they are repeatedly told, “Godot will not be arriving tonight, but surely tomorrow.”
No one can accurately predict the direction where interest rates are headed, but 34 years of history might give a good starting point for a general trend of future rates.
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The information provided in this guest post is for educational purposes only and should not be construed as advice of any kind.